Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

Regular readers of my columns know that my philosophy on small drug & biotech stocks is to take a "shotgun" approach. Lots of small positions in promising equities within the space instead of bigger core positions like I prefer in other sectors. One promising drug stock has popped up on my radar due to some recent positive analyst comments and it looks worthy of a small speculative investment.

Rigel Pharmaceuticals (NASDAQ:RIGL) is a clinical-stage drug development company that engages in the discovery and development of novel, small-molecule drugs for the treatment of inflammatory and autoimmune diseases, as well as muscle disorders. It has several compounds in various stages of development.

7 reasons RIGL is a good speculative play at $7 a share:

  1. Piper Jaffray raised its price target to $9 from $8 noting "While shares have been volatile following OSKIRA-4, we continue to believe fostamatinib is an approvable drug. In addition, we note that no new safety signals emerged. We believe fostamatinib's near miss on efficacy, combined with potential to demonstrate radiographic benefit in Phase III, provide an opportunity for shares to recover."
  2. After fourth quarter results, JP Morgan maintained its "Overweight" rating and $10 price target on the shares. It also stated "rheumatoid arthritis represents a huge and growing worldwide annual market of nearly $13B, and fostamatinib could emerge as a meaningful player in this space".
  3. In its quarterly report this week, the company posted losses that were 2 cents narrower than expectations. Given the company's small market capitalization (around $400mm after net cash is subtracted), projected revenue growth (see point 7) and promising drug pipeline; Rigel could easily find itself become a takeover target.
  4. After a recent secondary, the company has nearly $200mm in net cash on the books. Plenty of funds for the transition to positive cash flow status, which analysts expect by 2014.
  5. Consensus earnings estimates for both FY2013 and FY2014 have both risen nicely over the past three months.
  6. The mean price target held by the 7 analysts that cover the stock is just under $11 a share, implying 50% upside from the current stock price.
  7. Consensus revenues are expected to climb from just over $2mm in FY2012 to just under $60mm this fiscal year and over $150mm in FY2014.
Source: Rigel Pharmaceuticals: 7 Reasons To Buy This $7 Drug Stock